Forget September 29, by then the damage was already done and the writing was on the wall, writes Shane Coleman

Shane Coleman: We can't blame all our woes on the fateful night of the bank guarantee

Independent.ie

Don't believe the hype. If you listened to the vast majority of politicians, the media and even economists over the past seven years, then most of the country's ills can be laid at the door of that "fateful decision" to guarantee the banks in September 2008.

Don't believe the hype. If you listened to the vast majority of politicians, the media and even economists over the past seven years, then most of the country's ills can be laid at the door of that "fateful decision" to guarantee the banks in September 2008.

It's a ludicrous oversimplification. And one that, following Kevin Cardiff's appearance at the banking inquiry last Thursday, must go unchallenged no longer if we genuinely want to learn from the very real mistakes of the past.

Cardiff was (unfairly) vilified at the time the ­Government appointed him to the European Court of Auditors a few years back. But he was, by a country mile, the most impressive witness at the inquiry to date.

In four-and-a-half hours of testimony, he cut through a lot of the guff regularly spouted about the bank guarantee.

Cardiff, who as the senior civil servant with responsibility for financial services on that night, actually opposed the broad-based guarantee. He argued instead for the nationalisation of Anglo Irish Bank and a political declaration of support for the other five banks (effectively an unofficial guarantee).

He lost the argument and it would have been easy for him now to try to present himself as the sole voice of wisdom that night. Instead, he was honest enough to admit that, to this day, he isn't sure if he was right or not that night. He was emphatic that some form of guarantee was needed. Without it, there would have been the potential for real disaster.

Liquidating Anglo was too dangerous. Trying, as some have suggested, to buy time that night by deferring a decision in the hope of getting EU buy-in for the financial exposure would have been a "big gamble", Cardiff said. At least two of the banks were on the verge of running out of money. There was a very real risk of a run on the banking system.

And while Cardiff at the time favoured nationalising Anglo, he didn't for a second suggest it was any kind of panacea.

The nationalisation of Anglo happened four months later anyway. And given the massive opposition the state encountered when attempting to burn bondholders at different times over the next three years, there's no reason to believe nationalising it in September 2008 would have reduced the exposure to the taxpayer. All the evidence suggests the ECB, not to mention the US treasury, wouldn't have worn it.

As Cardiff bluntly put it, the meeting on the night of the bank ­guarantee was not about reaching the "right ­solution". It was about picking the "one least likely to lead to disaster". There were no easy ­options. It was too late.

Despite not advocating the guarantee at the time, Cardiff said its introduction held the banking system "together for the best part of a year" in the eye of a "perfect storm". It became "very clear that without the guarantee an awful lot of things could happen that would be even worse than what we had at the time", he said.

It would be nice to think that Cardiff's certainty will change the narrative that surrounds the banking collapse - the narrative that it's all about the night of ­September 29; that a different decision in the wee small hours would have changed everything. But we shouldn't be too hopeful.

A few months back, Patrick Honohan went back into the inquiry to clarify that regardless of what decision had been made that night, 90pc of the cost of the banks' collapse would still have landed at the state's door.

Despite coming from the country's foremost authority on banking, it went almost ignored. In contrast, a few weeks ­earlier, a US banking expert's simplistic assertion that the guarantee turned "a banking crisis into a fiscal crisis" was headline news. The US expert's version fitted the narrative. Honohan's didn't.

The reality is that despite all the focus - not least at the banking ­inquiry - on the guarantee, the real damage was done in the years running up to that point. By September 29, it was too late to save the banking system without a massive injection of capital.

The only question then was who was going to finance that. Nothing has happened in the intervening seven years to suggest it was ever going to be anybody other than the Irish taxpayer.

We know that. Just as we know the government was pushed "quite hard" (to use Cardiff's terminology) into the bailout in 2010. And just as we know the ECB did a good deal more than simply giving us advice on not burning bondholders.

It's been obvious for years what happened. Two governments tried to burn bondholders and pulled back. They pulled back for a reason - the people paying the piper were calling the tune.

We don't need a banking inquiry to tell us that. The inquiry may or may not be a worthwhile exercise. It will produce plenty of column inches as the likes of Neary, Cardiff and then Ahern and Cowen troop in to give evidence.

But will it tell us much more that we don't already know from the Nyberg Report?

It is, of course, vital that we learn the lessons of the country's folly during the boom. We need to make sure it never happens again.

However, that means properly focusing on the six-year period leading up to 2008 and what went wrong. If we continue to blindly follow the ­narrative of the night of the guarantee being at the root of all our problems, then there's little or no change of learning ­anything from the crash.